Tax Avoidance; how do big companies escape paying tax?

Big companies like Starbucks and Amazon makes millions of pounds each year. Yet somehow they seem to be paying less tax than the rest of us. Say what?

 

Tax avoidance 101: what do companies pay tax on?

Companies in the UK must pay corporation tax. This is a tax on the profits a company makes. It’s worth mentioning that profits are not the same as sales. Profits are your total sales, minus your costs. Basically what’s leftover at the end.

At the moment the corporation tax rate in the UK is 20%.

So if your company makes £100 in profit, you would need to pay £20 in corporation tax to HM revenue and customs.

All good in theory. Yet in reality many large companies are bringing in big profits, but paying low amounts of tax.

[SOR tax evaders video]

According to charity group Actionaid the UK’s top 98 companies are using tax havens. These are countries which offer businesses and individuals low tax rates.

Errr… how do big companies end up paying so little tax?

Two key terms: tax avoidance and tax evasion. They sound the same, but are actually very different.

Tax Avoidance - Scene from "Empire" I don't do taxes

Tax Evasion and Tax Avoidance – know the difference

Tax avoidance is legally using loopholes in the law to reduce the amount of tax that you pay. We’ll repeat again, legal.

Tax evasion is illegally escaping paying taxes, usually by hiding your income.

When we hear about big companies in tax scandals, we’re probably hearing about tax avoidance. In these cases the companies haven’t broken the law. They’ve just worked the system to lower their tax bill. Sneaky or what?

There are a variety of ways that companies can legally lower their tax bill. Most involve lowering profits – as low profits mean you pay less tax.

However, if the profits were actually lowered then the company would be making less money. Cue lots of anger from investors.

Stephanie Flanders from the BBC explains how moving money around within a company can reduce profits (therefore reducing tax) and save you a lot of £££.

 

 

Still confused? Tim Bennett from Money Week goes into a little more detail;

 

In nutshell: UK section of the company buys and sells to other branches overseas – the cost of doing this reduces the company’s profits (which reduces the tax bill) while most of the money remains within the company.

Or in other words: UK tax law is a f@%king mess.

 

Why should I care?

People get very angry about big business seeming to have an opt-out from paying taxes, whilst most mere mortals have no choice in the matter.

Tax Avoidance - TV host Jimmy Fallon looking outrages

People be like “WTF, mate”

The current debate over tax avoidance erupted around the time of the Occupy Movement. This is an international organisation campaigning against social and economic inequality. Occupy’s slogan “we are the 99%” highlights how the 1% minority seem to play by different rules to the rest of us.

Large companies can afford to pay teams of legal experts to find potential loopholes in tax law.

They can also afford to set-up and run their business from countries with lower tax thresholds. Both of these are options that smaller companies potentially don’t have.

 

 

Big companies be like "err.. we do pay tax.."

Big companies be like “err.. we do pay tax..”

Our taxes pay for public services like roads, schools, hospitals and the police.

Anti-tax avoidance campaigners argue that companies avoiding paying tax are depriving the country of money which goes towards these things. They believe that companies which operate and benefit from a country should all pay the same tax as the rest of us.

The Robin Hood Tax idea goes even further, suggesting we should charge a tax on all large financial transactions which would pay for public services.

However big multinational corporations say that they do pay the correct amount of tax. Legally this is true. Who’s to say whether this is a “fair” amount or not?

 

As Toby Young explains there is no real definition of a “fair” share of tax. Therefore if we think the fair share is actually higher than the rate set by the government then everyone who fails to volunteer to pay more tax is guilty of tax avoidance. Slightly awkward.

 

Tax Avoidance - a group of people raise their hands

Hands up who’s avoided tax buying stuff in Duty Free?

There is also the elephant in the room – that most of us have probably avoided tax at some point in our lives.

Picked up some cheap booze at the Duty Free stand after a holiday?

Yep, that’s technically avoiding tax. Perfectly legal though.

So, do we only care about tax avoidance when it is large companies involved? If so, there’s something of a double standard going on here.

 

Even if it seems like tax avoidance is bending the rules, a 1936 court case sets the precedent that this is fine. A ruling by Lord Tomlin on the Duke of Westminster’s tax arrangements stated;

 

“Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.”

Meaning: people may not like it but as long as you’ve stayed within the law then it’s all good.

 

What to do next?

Boycott Starbucks over tax evasion

Is boycotting a long-term option?

Many people who disagree with tax avoidance protest by boycotting the company involved.

For Starbucks this is easier than you think. I’ll just get my soy double shot espresso macchiato from another shop. Amazon? OK, fine, I’ll have to do my shopping in real life. Slightly annoying but all for a good a cause.

Boycott Facebook? Riiiight, so how are people going to see my latest selfie?

How about Google? WELL HOW THE HELL AM I GOING TO KNOW HOW TO GET ANYWHERE??!*

Sooo… boycotting may not work long-term.

However, you could write to your MP raising the issue, or join any one of the many organisations campaigning against tax avoidance. Or maybe you think the tax system works just fine. Let us know in the comments below.

 

* We hear great things about paper maps.

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Is Cyberbullying harmless banter or serious crime?

If you post a negative comment about someone online is that just harmless banter, or cyberbullying? What about freedom of speech?

 

What is Cyberbullying?

Cyberbulling = a wave of fire hits a computer user

Cyberbulling; a barrage of online insults

Cyberbullying (AKA Trolling) is bombarding someone online with insults and threats.

The rise of social media and online chatrooms has made it a lot easier for people to engage in cyberbullying. It’s a lot easier to say something nasty online, rather than to someone’s face. Victims of trolling can be celebrities but can also be ordinary people.

Cyberbullying can be as simple as leaving a hateful comment on someone’s profile, all the way up to posting naked pictures of someone online, or threatening them.

Though trolling is now part of  popular culture, referenced in films like Chatroom and Unfriended, this issue is more serious than it first seems.

 

Why are we talking about trolling?

Apps like Tripadvisor, where you can rate restaurants and hotels, are often hijacked by trolls. In some cases the trolls haven’t even visited the restaurant they are slamming.

As soon as a high-profile news story breaks, you can bet that people online will be expressing their views pretty vocally. There’s nothing wrong with expressing an opinion, but often people go a step too far. Charlotte Proudman, the barrister who called out sexism online received a barrage of death threats and menacing messages.

Twitter response to the Peeple app, people make comments comparing it to cyberbullying and trolling

Is #peeple just a new app for cyberbullying?

As with regular bullying, what can seem to the bully as harmless banter can be experienced by the victim as cyberbullying.

Defining cyberbullying is a question of proportion. Posting a single joke, or negative comment could be seen as harmless, but if this happens regularly then it could be seen as trolling.

However, even a single comment can be damaging, especially if you haven’t asked for feedback. That’s why everyone is getting vocal about a new app called Peeple. This app allows you to rate and review people you know, just like Tripadvisor.

People are irked because there is no way to opt out from being rated. The Telegraph describes how you can rate other people even if they don’t have the app, by simply entering their mobile number. To remove the review they have to sign up to the app themselves.

Positive responses to the Peeple app, accused of being a cyberbullying app

Divisive; Peeple has some supporters

Peeple CEO Julia Cordray said “You’re going to rate people in the three categories that you can possibly know somebody — professionally, personally or romantically”.

Ratings and reviews are not anonymous, something which the developers hope will prevent trolling and increase the amount of positive reviews. If someone calls you out with a negative review you get a 48 hour window to sort things with them before the comment is posted online.

It could be argued that Peeple users should be allowed to air their views. You know, freedom of speech and all that. Despite this people are still worried this is basically a trolling app; whereas some others are going to give Peeple a chance.

Cordray acknowledges that “there seems to be some fear and I have a lot of empathy for that… But I’m going to lead by example and show that this app is actually more positive than it ever could be negative.”

Which is fair enough, but as Cordray also says that we “deserve to see where you could improve” perhaps the negative comments about aspects of the Peeple app should be used to improve it?

Some are calling for Peeple to be banned by the app store –  others think governments can do much more to stop trolling ruining lives.

Have your say:

Is Peeple a good or bad thing? Let us know;

 

Should we take a tougher stance on trolling?

The number of cyberbullying victims in the UK is on the rise. A man called Sean Duffy was jailed in 2011 for posting insulting and insensitive messages about people who had died. In 2013 a teenage girl committed suicide after being bullied online.

A victim of cyberbullying with her head in her hands

Cyberbullying is on the rise in the UK

Yet for now there is no specific law against cyberbullying.

We have three different laws; the Malicious Communications Act, the Communications Act and the Protection from Harassment Act. Overkill much?

Messages which show intent to cause physical harm or violence, harassment or stalking will get you into trouble. But the Crown Prosecution Service (the guys who take you to court) is quite strict about who gets served.

Children who are unlikely to know the damage their comments may cause are unlikely to be prosecuted.

The UK government has just released a new anti-trolling website to help victims of cyberbullying. Should we go further, following New Zealand in making cyberbullying illegal?

New Zealand’s anti-trolling law was voted this year. It focuses on hate speech – so racism, sexism, homophobia are all no-goes. Trolls using offensive language or bullying people could end up with a fine or even jail time.

Despite most New Zealand MPs voting in favour of the new law many people worry it will limit freedom of speech. They say people offended by jokes, satirical articles or opinion pieces could use the law to attempt to get them removed.

Trolling is becoming a real problem, but is restricting people’s comments online prohibiting freedom of speech?

 

Cyberbullying Decoded: If you wouldn’t say it in person, don’t say it online.

Should the UK create a specific cyberbullying law? Are apps like Peeple just a harmless bit of tech, or something more sinister?

If you or someone you know is the victim of cyberbullying, Childline offers support and has guidance pages about what to do.

 

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Russia and the West’s tense relationship explained

Journalist and historian James Pearce explores some of the myths surrounding Russia. Is it true that Russians don’t like Westerners? If not, where does this idea come from?

 

Why is our relationship with Russia so tense?

The communist flag. Russia was once under the rule of Communism

Communism; all are equal…ish

Russia was once a country under the banner of Communism.

Communism is a political system where (in theory at least) all means of production are owned by the community rather than by individuals.

Russia was known to the world as ‘the Soviet Union’ or ‘USSR’ (Union of Soviet Socialist Republics). The revolution of October 1917 created a new kind of system which strived to create a communist state (by implementing the ideas of philosopher Karl Marx) in Russia. Before this point Russia was ruled for centuries as an autocracy by a ruling class called the Tsars.

The West (e.g. America, Britain and the rest of Europe) had adopted a system called Capitalism. This means trade, industry and the means of production are mostly privately owned and operated for profit.

Map showing the various sides and alliances in the cold war between Russia and the West

Cold War; in the red corner – Russia, vs. the West, in the blue corner

Because of these two different political ideas, Russia’s relationship with Western countries became strained. The West saw the Soviet Union as the true enemy to Western capitalism and civilisation.

As well as this initial reaction to the appearance of the Soviet Union, the post WWII world witnessed a nuclear arms race between America and Russia as a way of showing ideological superiority. The consequence of this was the staunch anti-Soviet rhetoric on one side in the West, and the anti-American policy complemented by strict censorship in the Soviet Union.

However, in Soviet times, the citizens would turn off the sound when images of America were shown on television. Ordinary people knew little about America and wanted the story beyond the anti-American propaganda of the Soviet government. Particularly in the 1980s when the incumbent leader, Mikhail Gorbachev, began to allow more freedoms in the media with his policy of glasnost (openness).

Today, this situation has changed dramatically. A recent survey by Levada found that around 70% of Russians have a negative opinion of Americans. Many will recall a laser image on the U.S Embassy of president, Barack Obama, eating a banana. Such actions come about as a result of the bad press abroad, particularly in the U.S. With the continued negativity throughout the media is it any wonder? This is not to defend these actions, but this combined with the geopolitical tone towards Russia has sparked a new feeling of anti-Westernism in Russia.

 

What is the Western media saying about Russia?

Screenshot of the Guardian asking "Is Western media biased towards Russia?"

Is Western media biased towards Russia?

There is no Soviet Union anymore, but Russia’s involvement in the Ukraine crisis has witnessed the return of negative stories about Russia in the Western press. However, the Russian press also produces negative stories about the West and these two prejudices play off one another.

EXPLORE: the Ukraine crisis, and how Russia is involved?

It’s an easy task to find headlines which adhere to the anti-Russian style, and doing so is also essential. As well as slamming Russia’s democratic record, the Western press has largely been focussing on Russia’s military capability, especially since the annexation of the Crimean Peninsula.

For example, there was a copy of Time magazine which depicted Russian President Putin and the remains of flight MH17 in his shadow. MH17 was shot down in Ukraine, and there was speculation that Russia was involved. This has not been proved. That didn’t stop The Sun newspaper referring to downing of flight MH17 as ‘Putin’s Missile’ on its front page.

EXPLORE: the “annexation” of Crimea – did Russia steal a country

Obscene titles such as ‘Putin has Asperger’s’ or ‘Russians need to suffer to survive’ provide no real information about the situation, but do reveal the growing obsession with condemning Russia.

It is the belief of some, such as former CNN producer Danny Schechter, that the majority of Americans ‘completely trust’ their news channels. He told Russia Today “they don’t speak Russian and there is no background or context. As a result, they are willing to believe the worst”.

 

War Games

Russian military forces stand in front of a tank

War games; Russia’s military presence worries the West

Moscow has repeatedly denied claims of Russian troops being present in Ukraine and recently started developing new nuclear missiles and tanks.

According to Test Tube News, Russia has around 8,500 nuclear warheads, of which 1,800 are operational, and around 845,000 active troops. These missiles are only a deterrent, meaning any launch would result in the same amount of destruction in return. The troop size is actually one of their stronger points. Military funding in 2015 is expected to be at around $81 billion compared to the U.S’s $831 billion. Much of Russia’s army is also ill equipped with modern technology, yet they operate more tanks than the U.S.

President Obama has described Russia as only a ‘regional power’, something which still plays into the hands of the press. In an article for Russia! magazine, Mark Galeotti wrote that Russia’s military is ‘good enough to chew through Ukraine and Georgia, but not for more advanced purposes’.

This was enough justification for the West to send extra troops to the Russian border in Estonia and Latvia (also Poland). Stories about Crimea and Russian ‘volunteers’ fighting in Eastern Ukraine create the impression of an imminent Russian invasion.

Russia and the West; President Barack Obama and President Vladimir Putin sit awkwardly in silence

Tension, what tension?

In another example, the visit of former Greek Prime Minister Alexis Tspiras to Moscow caused panic. An article by Timothy Heritage for Reuters highlighted how realistic it would be for Greece to link up with Russia. Ties of culture and religion keep them closely acquainted and sympathisers to each other’s situation.

For months after the visit the press talked of Greece leaving the Eurozone and becoming a prospective member of BRICS (the countries of Brazil, Russia, India and China, all deemed to be at a similar stage of new economic development). If this happened it could open a space for Russian business and military bases on the European continent.

By the press focusing on a fear of what Russia might do as opposed to why such a move may have suited Greece, it in turn showed Russia as a real threat to the national security of Western nations.

Regardless of Russia’s military capability, the belief of a dangerous Eastern neighbour exists. There is a clear anxiety shown in reports of Russian planes entering NATO member airspace or submarines just off shore. A visitor to my university, Chuck Snodgrass who worked in the U.S military and closely with the CIA, told us of the ‘Pearl Harbour Syndrome’ America has. The Western press echoes the American fears of being caught out again with their planes on the ground like in 1941.

This paranoia coupled with Russian planes entering UK airspace and their large nuclear arsenal creates a very tense situation with the potential to worsen. The nuclear of Russia arsenal leads the West in to thinking a war would be disastrous. This is an area where they cannot compete.

 

What do the Russians think?

LGBT activists were attacked during an action "Day of Kisses" against a homophobic bill that would prevent "non-traditional sexual relations propaganda among minors", aka the "gay propaganda ban" in front of the State Duma in Moscow, Russia. Москва. Акция активистов ЛГБТ сообщества "День Поцелуев" против приниятия гомофобного закона у ГосДумы в Москве закончилась избиениями активистов и задержаниями.

Russia has been criticised as being homophobic –  LGBT activists under attack in Moscow

On my first visit to Russia in 2013, I stayed with friends in their apartment in Southwest Moscow. As is the ‘done thing’ here, we started drinking in the kitchen and discussing politics. When America came up in conversation, my friend Svetlana said something I had never considered, yet perpetually do now. Specifically discussing Russia’s gay propaganda laws, she exclaimed:

“How can America lecture us on what to do and how to live, then justify going to war with everybody?!”

This viewpoint is similar to that of Russian film maker, Andron Konchalovskiy. Whilst discussing Russo-Western relations with Russia’s most famous journalist he said:

“It’s too bad we’re not blue, green or purple, because if we were, then the world would treat us differently […] The West expects us to act like they act. They go after us all the time. Do you know why? It’s because we look like them. If we looked different they’d get off our backs. Take the Chinese. Does the west ever go after them for not being democratic, for not living up to Western standards? No. And why not? Because the Chinese look different. I tell you, the problem is that we look like westerners, but in fact we’re not, we’re different”.

The feeling in Russia, by at large, is one of mistreatment. The population feel that their situation is not entirely understood, especially concerning Ukraine, a crisis with local roots. Despite Russia not being considered a part of the ‘civilised world since the time of the Mongol occupation, there is still a huge expectation among Western nations for Russia to play along. They look like westerners, but they are not. When Communism fell, the expectation was that Russia would change overnight and jump on the free market economics band wagon; it did not.

It is also possible that Russia does not understand America’s situation since both have little in common as nations; their histories have been completely different.

With regards to the UK, the reaction is mixed. 62% of Russians have a negative attitude towards to EU, although this merely scratches the surface. Since the Iraq War, many Russians see the Brits as the flag carrier of U.S foreign policy, which may explain the claim that the UK is becoming a ‘diplomatic irrelevance’.

The editor of The Moscow Times (Moscow’s English language newspaper), Nabi Abdullaev, wrote in The Guardian that the West’s bias ‘robs it of its moral authority’:

Russia's president Putin at an international summit

Enigma; the West wonder what Putin’s end game is

“Most western media cover the crisis in Ukraine mainly by concentrating on the Russian President’s cynicism and imperial ambitions. There is excellent field reporting from Ukraine in the western media, but they make only a modest part of the general message”

He also went on to say that covering key issues like the U.S’s intentions with Ukraine, Ukraine’s future government and Putin’s paranoia regarding NATO are rarely, if at all covered. For instance, most Crimeans welcomed their reincorporation to Russia, but the West focused on how illegal it was.

Indeed, the NATO paranoia is evident from the president to the people; to be portrayed as a threat and then encircled (and sanctioned) is something Russians view as unacceptable. Not least because Gorbachev was promised NATO would stay put after Germany’s reunification. Now NATO sits on Russia’s border. Having a president who stands up to the West and asserts Russia’s authority is the anecdote.  

Unlike Americans however, Russians do not appear to be fearful of a military conflict. Levada’s report this August showed Russians fear poverty more than a new war. Moreover, it revealed greater numbers of people feel stability inside the country compared with 2013.

 

Bias? If not, what’s happening?

Russia will always be a country which provokes a wide spectrum of views. Evidence usually makes people change their minds, although the line between facts and fiction appears to be blurred. Both sides claim a different truth with a lot of it left unsaid at either end. Without question, the West routinely downplays the Russian side of the story, but 90% of Russians receive their news from state run channels, and therefore also receive biased information.

After the Soviet Union became the new Russian Federation. Russia will not become a new, different kind of country until those who were born in the Russian Federation come to power and start controlling things. However, closing itself off to the West will also not improve the situation at home.

 

James is a Moscow based journalist and historian who also writes for The News Hub and Russia! magazine. Follow him on twitter @JamesPearce_101

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Perspective; the Gentrification debate explained

Cities all over the world are experiencing a new phenomenon – gentrification. Rents are rising in urban areas, forcing out families who have lived there for generations.

 

Why should I care about Gentrification?

Because it could mean you can’t afford to live in the area you grew up in.

In cities around the world traditionally working class areas suddenly seem full of vintage shops and “hipster” craft ale pubs. More importantly, local residents are being forced out due to rent increases. This is all due to gentrification.

In London, activists protesting against the gentrification of the East End attacked the Cereal Killer Cafe in Shoreditch, which charges £2.50 for a single bowl of breakfast-y goodness.

The protesters wrote online “we don’t want luxury flats that no-one can afford, we want genuinely affordable housing…. we don’t want pop-up gin bars or brioche buns – we want a community.”

 

Define this for me?

Gentrification is defined as “the buying and renovating of houses and stores in deteriorated urban neighbourhoods by wealthier individuals”.

Yeah, because that sounds easy to understand. Not.

For those who don’t speak social geography: gentrification basically means wealthier people start moving into certain urban areas where housing is cheaper. This leads to a rise in rents and the cost of living which can sometimes mean people on a lower-income are forced out of the area.

The phrase was coined in 1964, by sociologist Ruth Glass who believed the gentrification process created “upper-class ghettos.”

“One by one, many of the working class quarters of London have been invaded by the middle-classes—upper and lower. Shabby, modest mews and cottages—two rooms up and two down—have been taken over, when their leases have expired, and have become elegant, expensive residences …. Once this process of ‘gentrification’ starts in a district it goes on rapidly until all or most of the original working-class occupiers are displaced and the whole social character of the district is changed.”

 

Give me an example?

Gentrification Explained; Box park in Shoreditch

Box Park in Shoreditch – a sign of gentrification?

Manchester’s Northern Quarter, Moseley in Birmingham and Partick in Glasgow’s West End are all areas experiencing gentrification.

In London the 2012 Olympics brought at least £9 billion of investment to the east of the city in the form of new buildings and facilities.

Buildings once housing athletes have now been converted into flats – available to the public.

This renewal has spread with many companies, bars and restaurants popping up in the area. Areas like Shoreditch and Hackney are now seen as trendy areas to live.

 

Anti- gentrification graffiti painted on a wall

Does gentrification = class war?

However, some see the “renewal” of the East End as a bad thing. For example, half of the Olympic flats are supposed to be “affordable” yet as the Independent reports, not everyone believes they are. Employment in the Olympic borough of Tower Hamlets actually went down over the Olympic period, according to MP Rushanara Ali.

Across in Europe, VICE news explores Berlin’s war against gentrification. Paris has been described as a citadel of the rich “where the elite reproduces itself”

New York’s Harlem, a district once associated with “urban blight, crime, gangs, and drugs” according to the Chicago Booth magazine, is now home to “upscale delis, numerous banks, and that telltale sign of gentrification: fashion-conscious young men in knitted hats.”

 

Who’s to blame?

Man in "hipster" garb, does this lead to gentrification?

Are hipsters to blame for gentrification?

People can’t decide for certain what causes gentrification. Some blame local councils for granting planning permission for expensive high-rise flats. Others think the government needs to do more to control rents increases.

Many link the rise of “Hipster” culture to gentrification. Creatives and artistic types generally don’t earn six figure salaries and so move to areas where it’s cheaper to live.

Individuals on higher pay grades also start moving to these areas, attracted by the “trendy” vibes created by the hipsters. As more wealthy individuals enter the area, prices start to rise.

Whilst some argue that hipsters are a symptom, not a cause of gentrification, they provide an easy target for those wanting to rally against changes to their area.

 

Gentrification can’t be all bad?

The Hackney Pearl in Hackney Wick. The East End of London is experiencing gentrification

Gentrification brings money into the area

Families being forced out of the areas they grew up in does not sound good. “Upper-class Ghettos” also sounds rather dodgy. However, investing in an area does have its benefits.

Vintage shops, craft-ale bars and even cereal cafes create jobs and wealth. The tax paid by these companies is spent by local councils on improving the area.

It’s often claimed that gentrified areas also have lower crime levels. Which is a good thing, surely?

So, urban renewal is good for the area, but not necessarily for all the people who have lived there all their lives. Is there a better way of redeveloping the spaces we live in?

 

What do we think about #gentrification?


 

Gentrification explained; watch out for men in tweed jackets with man-buns.

Gentrification is becoming a problem in our cities, yet there’s more to this than cafes which charge £2.50 for a bowl of cereal.

Join the debate and tell us in the comments below – is gentrification is good or bad? Or if taking action is more your thing;

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